2025 (1) TMI 372 - AT - Income Tax

Addition u/s. 69A - unaccounted deposits introduced by the assessee into the firm - HELD THAT - It is admitted fact that the additions had been made by the AO based on incriminating material only. Further, we have observed that the financial position extracted / culled out and furnished by the assessee from the incriminating materialsi.e. books of accounts maintained in the software foxpro available and perused by the AO. The extract prepared from books seized cannot be regarded as fresh evidence, within the meaning of Rule 46A of the IT. Rules 1962. Balances of receivable from the borrowers are carried forward from the preceding financial years. Hence, we find force in the argument of the Ld.AR that the opening balance cannot be added as income of the current year by invoking section 69A - AO made addition based on the loose sheets seized but without bringing on record any other evidence to support his case that the amount in question was invested by the partner during the year under appeal. We also note that the Ld.DR could not produce any evidence to support the point that the amount in question was invested by the partner into the firm in the impugned assessment year. The amount in question, being opening balance, cannot be added as income of the assessee u/s. 69A of the Act and we find no infirmity in the order of the ld.CIT(A) in so far as his direction to delete the addition made by the AO and hence, we uphold the same. Addition u/s 69A apply to the deposits made by a partner into the firm - Amount of deposit made by the partner into the firm would not fall under the provisions of section 69A of the Act and therefore, we find no infirmity in the order passed by CIT(A) in holding that the addition made u/s. 69A of the Act is invalid.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment primarily revolves around the following core legal questions:

Whether the addition of Rs. 2,50,00,000/- towards unaccounted deposits under Section 69A of the Income Tax Act, 1961, was justified.
Whether the provisions of Section 69A of the Income Tax Act apply to the deposits made by a partner into the firm.
Whether the CIT(A) was correct in deleting the addition made by the Assessing Officer (AO) based on seized materials.
Whether the CIT(A) violated Rule 46A of the Income Tax Rules, 1962, by accepting fresh evidence during appellate proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition of Rs. 2,50,00,000/- under Section 69A

Relevant Legal Framework and Precedents: Section 69A of the Income Tax Act pertains to unexplained money, bullion, jewellery, or other valuable articles found in the possession of the assessee. The burden is on the assessee to explain the nature and source of such possessions.
Court's Interpretation and Reasoning: The Tribunal found that the amount in question was an opening balance and not introduced during the year under appeal. The CIT(A) held that the addition of Rs. 2,50,00,000/- was not sustainable as it was an opening balance and not income of the current year.
Key Evidence and Findings: The seized loose sheets indicated that the amount was an opening balance as of 01.04.2017. The CIT(A) relied on the seized material and the lack of any corroborative evidence from the AO to support the addition.
Application of Law to Facts: The Tribunal applied Section 69A and concluded that the provisions did not apply as the amount was an opening balance, not unexplained money introduced during the relevant financial year.
Treatment of Competing Arguments: The Revenue argued that the CIT(A) erred in deleting the addition, but the Tribunal upheld the CIT(A)'s decision, finding no fresh evidence was introduced in violation of Rule 46A.
Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the addition, confirming that the amount was an opening balance and not unexplained money under Section 69A.

Issue 2: Applicability of Section 69A to Partner Deposits

Relevant Legal Framework and Precedents: The applicability of Section 69A to deposits by partners into a firm was examined in light of judicial precedents, including the Supreme Court ruling in D.N. Singh.
Court's Interpretation and Reasoning: The CIT(A) and Tribunal held that deposits by partners into the firm do not fall under Section 69A as they do not constitute unexplained money or valuable articles.
Key Evidence and Findings: The seized documents were deemed insufficient to classify the deposits as unexplained money under Section 69A.
Application of Law to Facts: The Tribunal applied the Supreme Court's interpretation, concluding that the deposits did not meet the criteria for unexplained money under Section 69A.
Treatment of Competing Arguments: The Revenue's argument that the deposits were unexplained money was rejected based on the Supreme Court's precedent.
Conclusions: The Tribunal affirmed that Section 69A does not apply to partner deposits, supporting the CIT(A)'s decision to delete the addition.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The concept of 'other valuable articles' may evolve with the arrival in the market of articles, which can be treated as other valuable articles on satisfying the other tests."
Core Principles Established: The judgment reinforced that opening balances cannot be taxed as income of the current year under Section 69A, and deposits by partners do not constitute unexplained money.
Final Determinations on Each Issue: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of Rs. 2,50,00,000/- under Section 69A, and ruled that the provisions of Section 69A do not apply to partner deposits.

The judgment provides a comprehensive analysis of the applicability of Section 69A to partner deposits and emphasizes the importance of corroborative evidence in supporting additions based on seized materials. The Tribunal's decision underscores the necessity of adhering to procedural rules, such as Rule 46A, during appellate proceedings.

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